General Industry Letters
Mortgage Banking Letters
August 22, 1996
TO: CHIEF EXECUTIVE OFFICER OF THE BANK, TRUST COMPANY, SAVINGS AND LOAN, BRANCH OR AGENCY ADDRESSED
SUBJECT: VACATION POLICY AS AN INTERNAL CONTROL SAFEGUARD
This letter is an effort to provide guidance on the vacation policies of banking institutions.
The New York State Banking Department considers it to be a prudent business practice for every bank, and branch or agency of a foreign banking corporation, to promulgate and maintain a written vacation policy which, at a minimum, covers those officers and employees involved or engaged in transactional business or having the ability to change the official records of the institution. This policy should also cover all other staffers who are capable of influencing or causing such activities to occur. The Department strongly recommends that all traders be covered by the policy.
Employees in such sensitive positions should be required to take at least two (2) consecutive weeks of vacation (or other leave) on an annual basis. During such time, the officer or employee must be off-site and off-line. In other words, not only should he/she be physically absent from your premises, but he/she should also not be permitted to effect any transactions or other banking business from off-site, such as through an off-site computer link.
The implementation of such a policy is considered an important internal control safeguard and is in accordance with safe and sound banking. As you know, the perpetration of a fraud or illegal scheme of any substantial size often requires the continual presence of the perpetrator in order to manipulate records, respond to inquiries from customers, other employees or correspondent banks, and otherwise prevent detection. Despite changes in technology and advanced audit techniques, the two week vacation policy remains a critical ingredient in identifying significant defalcations. It is important that bank management as well as bank directors understand the value and benefits of this policy.
The Department recognizes that exceptions to this policy may occur. However, we recommend that the same individuals not be permitted continual exceptions. The Department further suggests that the granting of such exceptions be noted in writing, be approved by senior management on a case-by-case basis, and that an overall review of this policy-and the exceptions thereto-be annually reviewed by the executive management of your institution.
Your institution's vacation policies and procedures will be reviewed during safety and soundness examinations. The Department will be looking for compliance with prudent practices in this area.
Therefore, we strongly recommend that your current or future vacation policies incorporate these provisions.
Very truly yours,
Superintendent of Banks